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  • Agris Gruzdas

There’s no returning back to “old normal”


Now that several macro indicators have been published, the data can be compared with the previous crisis. GDP is an easy-to-understand indicator for everyone and it is difficult to deny the economic impact of COVID-19 when you see data like this: comparative quarterly indicators.


The first thing that catches your eye is that nothing seams have changed in China. Their data is unbelievable! Secondly – on the opposite side of spectrum is United Kingdom having really tough times, dealing with Brexit and COVID-19 issues combined.

The next – how severe is this fall?

If we look at historical data, the 2008 crisis affected the US economy much less than this time. And if we look even further into history, the current fall has been one of the most impressive in modern history.


And at the same time stock markets are reaching their historic highs…

It should be immediately considered that the stock market "pullers" are technology giants and overall, relatively positive mood of consumers prevail.

Why the positive? Because in this crisis the world reacted much faster to what was happening than previously. Each country immediately took various actions to stimulate the economy and help their people. This has led consumers to believe that "by and large everything is under control." But is it?

Many support programs soon will be exhausted. Nobody knows if there will be some new ones. And nobody can tell when the COVID-19 will disappear completely.

And when consumers will run out of support programs money and unemployment benefits, a lot of people will find out that they have no job to return to. Simply because many companies will not survive this crisis.

In another words – there’s no returning back “to old normal”. This means that the economy most likely won’t return the “old rhythm” either.

Look at the stock indicators of small market capitalization companies and technology companies.


It was clear that technology companies are doing way better than others at this point.

And if the bubble of technology companies will burst – then the fall will be more than painful. I don’t recommend trying to go against technology companies. In my opinion, it is too risky “entertainment”. However, if there is a desire to short something on the stock market, then I would recommend looking at the banking sector and companies with huge debts. Such as AT&T, Verizon, Ford, Comcast, GE, etc.


In my opinion, the decisive factor now will be fiscal spending, or fiscal policy to be precise. Each country will have to stimulate its economy. And those countries that successfully plan their fiscal spending and policies will benefit the most. It is necessary to follow what support programs will be developed for small entrepreneurs. What support will be available to the unemployed who will not be able to find a job for a long time, etc. And, of course, the COVID-19 remains the most important factor above all.

Stay tuned!


Agris


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